NEGO CASES RULLING: A cause of action is defined as an act or omission of

one party in violation of the legal right or rights of another. The

COMPLETE BUT UNDELIVERD essential elements are: (1) legal right of the plaintiff; (2) correlative
1. DEVELOPMENT BANK v SIMA WEI obligation of the defendant; and (3) an act or omission of the
defendant in violation of said legal right. 2
FACTS: In consideration for a loan extended by petitioner Bank to
respondent Sima Wei, the latter executed and delivered to the The normal parties to a check are the drawer, the payee and the
former a promissory note, engaging to pay the petitioner Bank or drawee bank. Courts have long recognized the business custom of
order the amount of P1,820,000.00 on or before June 24, 1983 with using printed checks where blanks are provided for the date of
interest at 32% per annum. Sima Wei made partial payments on the issuance, the name of the payee, the amount payable and the
note, leaving a balance of P1,032,450.02. On November 18, 1983, drawer's signature. All the drawer has to do when he wishes to
Sima Wei issued two crossed checks payable to petitioner Bank issue a check is to properly fill up the blanks and sign it. However,
drawn against China Banking Corporation, bearing respectively the the mere fact that he has done these does not give rise to any
serial numbers 384934, for the amount of P550,000.00 and liability on his part, until and unless the check is delivered to the
384935, for the amount of P500,000.00. The said checks were payee or his representative. A negotiable instrument, of which a
allegedly issued in full settlement of the drawer's account check is, is not only a written evidence of a contract right but is
evidenced by the promissory note. These two checks were not also a species of property. Just as a deed to a piece of land must be
delivered to the petitioner-payee or to any of its authorized delivered in order to convey title to the grantee, so must a
representatives. For reasons not shown, these checks came into the negotiable instrument be delivered to the payee in order to
possession of respondent Lee Kian Huat, who deposited the checks evidence its existence as a binding contract. Section 16 of the
without the petitioner-payee's indorsement (forged or otherwise) to Negotiable Instruments Law, which governs checks, provides in
the account of respondent Plastic Corporation, at the Balintawak part:
branch, Caloocan City, of the Producers Bank. Cheng Uy, Branch "Every contract on a negotiable instrument is incomplete and
Manager of the Balintawak Branch of Producers Bank, relying on revocable until delivery of the instrument for the purpose of giving
the assurance of respondent Samson Tung, President of Plastic effect thereto. . . ."
Corporation, that the transaction was legal and regular, instructed
the cashier of Producers Bank to accept the checks for deposit and Thus, the payee of a negotiable instrument acquires no interest
to credit them to the account of said Plastic Corporation, inspite of with respect thereto until its delivery to him. 3 Delivery of an
the fact that the checks were crossed and payable to petitioner instrument means transfer of possession, actual or constructive,
Bank and bore no indorsement of the latter. Hence, petitioner filed from one person to another. 4 Without the initial delivery of the
the complaint as aforestated. instrument from the drawer to the payee, there can be no liability
on the instrument. Moreover, such delivery must be intended to
ISSUE: whether petitioner Bank has a cause of action against any give effect to the instrument.
or all of the defendants
The allegations of the petitioner in the original complaint show that receipt in favor of said bank wherein said defendant undertook to
the two (2) China Bank checks, numbered 384934 and 384935, hold in trust for plaintiff the periodicals and to sell the same with
were not delivered to the payee, the petitioner herein. Without the the promise to turn over to the plaintiff the proceeds of the sale of
delivery of said checks to petitioner-payee, the former did not said publication to answer for the payment of all obligations
acquire any right or interest therein and cannot therefore assert any arising from the draft.
cause of action, founded on said checks, whether against the
drawer Sima Wei or against the Producers Bank or any of the other ISSUE:WON defendant is an accommodation party
respondents. HELD: The defendant does not have a good and substantial
defense. Defendant Aruego's defenses consist of the following:

a) The defendant signed the bills of exchange referred to in the

LIABILITY OF PERSONS SIGNING AS AGENT
plaintiff's complaint in a representative capacity, as the then
2. PHILIPPINE BANK OF COMMERE v ARUEGO President of the Philippine Education Foundation Company,
publisher of "World Current Events and Decision Law Journal,"
On December 1, 1959, the Philippine Bank of Commerce instituted printed by Encal Press and Photo-Engraving, drawer of the said
against Jose M. Aruego Civil Case No. 42066 for the recovery of bills of exchange in favor of the plaintiff bank;
the total sum of about P35,000.00 with daily interest thereon from
November 17, 1959 until fully paid and commission equivalent to b) The defendant signed these bills of exchange not as principal
3/8% for every thirty (30) days or fraction thereof plus attorney's obligor, but as accommodation or additional party obligor, to add
fees equivalent to 10% of the total amount due and costs. 6 The to the security of said plaintiff bank. The reason for this statement
complaint filed by the Philippine Bank of Commerce contains is that unlike real bills of exchange, where payment of the face
twenty-two (22) causes of action referring to twenty-two (22) value is advanced to the drawer only upon acceptance of the same
transactions entered into by the said Bank and Aruego on different by the drawee, in the case in question, payment for the supposed
dates covering the period from August 28, 1950 to March 14, bills of exchange were made before acceptance; so that in effect,
1951. 7 The sum sought to be recovered represents the cost of the although these documents are labelled bills of exchange, legally
printing of "World Current Events," a periodical published by the they are not bills of exchange but mere instruments evidencing
defendant. To facilitate the payment of the printing the defendant indebtedness of the drawee who received the face value thereof,
obtained a credit accommodation from the plaintiff. Thus, for with the defendant as only additional security of the same. 33
every printing of the "World Current Events," the printer, Encal
Press and Photo-Engraving, collected the cost of printing by The first defense of the defendant is that he signed the supposed
drawing a draft against the plaintiff, said draft being sent later to bills of exchange as an agent of the Philippine Education
the defendant for acceptance. As an added security for the payment Foundation Company where he is president. Section 20 of the
of the amounts advanced to Encal Press and Photo-Engraving, the Negotiable Instruments Law provides that "Where the instrument
plaintiff bank also required defendant Aruego to execute a trust contains or a person adds to his signature words indicating that he
signs for or on behalf of a principal or in a representative capacity,
he is not liable on the instrument if he was duly authorized; but the The defendant also contends that the drafts signed by him were not
mere addition of words describing him as an agent or as filling a really bills of exchange but mere pieces of evidence of
representative character, without disclosing his principal, does not indebtedness because payments were made before acceptance. This
exempt him from personal liability." is also without merit. Under the Negotiable Instruments Law, a bill
of exchange is an unconditional order in writing addressed by one
An inspection of the drafts accepted by the defendant shows that person to another, signed by the person giving it, requiring the
nowhere has he disclosed that he was signing as representative of person to whom it is addressed to pay on demand or at a fixed or
the Philippine Education Foundation Company. 34 He merely determinable future time a sum certain in money to order or to
signed as follows: "JOSE ARUEGO (Acceptor) (SGD) JOSE bearer. 36 As long as a commercial paper conforms with the
ARUEGO." For failure to disclose his principal, Aruego is definition of a bill of exchange, that paper is considered a bill of
personally liable for the drafts he accepted. exchange. The nature of acceptance is important only in the
The defendant also contends that he signed the drafts only as an determination of the kind of liabilities of the parties involved, but
accommodation party and as such, should be made liable only after not in the determination of whether a commercial paper is a bill of
a showing that the drawer is incapable of paying. This contention exchange or not.
is also without merit.

An accommodation party is one who has signed the instrument as

3. FRANCISCO v CA
maker, drawer, acceptor, indorser, without receiving value therefor
and for the purpose of lending his name to some other person. The controversy before this Court finds its origins in a Land
Such person is liable on the instrument to a holder for value, Development and Construction Contract which was entered into on
notwithstanding such holder, at the time of the taking of the June 23, 1977 by A. Francisco Realty & Development Corporation
instrument knew him to be only an accommodation party. 35 In (AFRDC), of which petitioner Adalia Francisco (Francisco) is the
lending his name to the accommodated party, the accommodation president, and private respondent Herby Commercial &
party is in effect a surety for the latter. He lends his name to enable Construction Corporation (HCCC), represented by its President
the accommodated party to obtain credit or to raise money. He and General Manager private respondent Jaime C. Ong (Ong),
receives no part of the consideration for the instrument but pursuant to a housing project of AFRDC at San Jose del Monte,
assumes liability to the other parties thereto because he wants to Bulacan, financed by the Government Service Insurance System
accommodate another. In the instant case, the defendant signed as (GSIS). Under the contract, HCCC agreed to undertake the
a drawee/acceptor. Under the Negotiable Instruments Law, a construction of 35 housing units and the development of 35
drawee is primarily liable. Thus, if the defendant who is a lawyer, hectares of land. The payment of HCCC for its services was on a
really intended to be secondarily liable only, he should not have turn-key basis, that is, HCCC was to be paid on the basis of the
signed as an acceptor/drawee. In doing so, he became primarily completed houses and developed lands delivered to and accepted
and personally liable for the drafts. by AFRDC and the GSIS. To facilitate payment, AFRDC executed
a Deed of Assignment in favor of HCCC to enable the latter to
collect payments directly from the GSIS. Furthermore, the GSIS checks were never delivered to HCCC. Upon inquiry with Diaz,
and AFRDC put up an Executive Committee Account with the Ong learned that the GSIS gave Francisco custody of the checks
Insular Bank of Asia & America (IBAA) in the amount of since she promised that she would deliver the same to HCCC.
P4,000,000.00 from which checks would be issued and co-signed Instead, Francisco forged the signature of Ong, without his
by petitioner Francisco and the GSIS Vice-President Armando knowledge or consent, at the dorsal portion of the said checks to
Diaz (Diaz). make it appear that HCCC had indorsed the checks; Francisco then
indorsed the checks for a second time by signing her name at the
On February 10, 1978, HCCC filed a complaint 3 with the back of the checks and deposited the checks in her IBAA savings
Regional Trial Court of Quezon City against Francisco, AFRDC account. IBAA credited Francisco's account with the amount of the
and the GSIS for the collection of the unpaid balance under the checks and the latter withdrew the amount so credited.
Land Development and Construction Contract in the amount of
P515,493.89 for completed and delivered housing units and land On June 7, 1979, Ong filed complaints with the office of the city
development. However, the parties eventually arrived at an fiscal of Quezon City, charging Francisco with estafa thru
amicable settlement of their differences, which was embodied in a falsification of commercial documents. Francisco denied having
Memorandum Agreement executed by HCCC and AFRDC on July forged Ong's signature on the checks, claiming that Ong himself
21, 1978. Under the agreement, the parties stipulated that HCCC indorsed the seven checks in behalf of HCCC and delivered the
had turned over 83 housing units which have been accepted and same to Francisco in payment of the loans extended by Francisco
paid for by the GSIS. The GSIS acknowledged that it still owed to HCCC. According to Francisco, she agreed to grant HCCC the
HCCC P520,177.50 representing incomplete construction of loans in the total amount of P585,000.00 and covered by eighteen
housing units, incomplete land development and 5% retention, promissory notes in order to obviate the risk of the non-completion
which amount will be discharged when the defects and deficiencies of the project. As a means of repayment, Ong allegedly issued a
are finally completed by HCCC. It was also provided that HCCC Certification authorizing Francisco to collect HCCC's receivables
was indebted to AFRDC in the amount of P180,234.91 which the from the GSIS. Assistant City Fiscal Ramon M. Gerona gave
former agreed would be paid out of the proceeds from the 40 credence to Francisco's claims and accordingly, dismissed the
housing units still to be turned over by HCCC or from any amount complaints, which dismissal was affirmed by the Minister of
due to HCCC from the GSIS. Consequently, the trial court Justice in a resolution issued on June 5, 1981.
dismissed the case upon the filing by the parties of a joint motion
to dismiss. The present case was brought by private respondents on November
19, 1979 against Francisco and IBAA for the recovery of
Sometime in 1979, after an examination of the records of the P370,475.00, representing the total value of the seven checks, and
GSIS, Ong discovered that Diaz and Francisco had executed and for damages, attorney's fees, expenses of litigation and costs. After
signed seven checks 4 , of various dates and amounts, drawn trial on the merits, the trial court rendered its decision in favor of
against the IBAA and payable to HCCC for completed and private respondents, the dispositive portion of which provides
delivered work under the contract. Ong, however, claims that these
WHEREFORE, premises considered, judgment is hereby rendered fact having been effectively concealed by Francisco, until private
in favor of the plaintiff's and against the defendants INSULAR respondents acquired knowledge of Francisco's misdeeds in 1979.
BANK OF ASIA & AMERICA and ATTY. ADALIA
FRANCISCO, to jointly and severally pay the plaintiffs the IBAA was held liable to private respondents for having honored
amount of P370.475.00 plus interest thereon at the rate of 12% per the checks despite such obvious irregularities as the lack of initials
annum from the date of the filing of the complaint until the full to validate the alterations made on the check, the absence of the
amount is paid; moral damages to plaintiff Jaime Ong in the sum signature of a co-signatory in the corporate checks of HCCC and
of P50,000.00; exemplary damages of P50,000.00; litigation the deposit of the checks on a second indorsement in the savings
expenses of P5,000.00; and attorney's fees of P50,000.00. account of Francisco. However, the trial court allowed IBAA
recourse against Francisco, who was ordered to reimburse the
With respect to the cross-claim of the defendant IBAA against its IBAA for any sums it shall have to pay to private respondents. 5
co-defendant Atty. Adalia Francisco, the latter is ordered to
reimburse the former for the sums that the Bank shall pay to the Both Francisco and IBAA appealed the trial court's decision, but
plaintiff on the forged checks including the interests paid thereon. the Court of Appeals dismissed IBAA's appeal for its failure to file
its brief within the 45-day extension granted by the appellate court.
Further, the defendants are ordered to pay the costs. IBAA's motion for reconsideration and petition for review on
certiorari filed with this Court were also similarly denied. On
Based upon the findings of handwriting experts from the National November 21, 1989, IBAA and HCCC entered into a Compromise
Bureau of Investigation (NBI), the trial court held that Francisco Agreement which was approved by the trial court, wherein HCCC
had indeed forged the signature of Ong to make it appear that he acknowledged receipt of the amount of P370,475.00 in full
had indorsed the checks. Also, the court ruled that there were no satisfaction of its claims against IBAA, without prejudice to the
loans extended, reasoning that it was unbelievable that HCCC was right of the latter to pursue its claims against Francisco.
experiencing financial difficulties so as to compel it to obtain the
loans from AFRDC in view of the fact that the GSIS had issued On June 29, 1992, the Court of Appeals affirmed the trial court's
checks in favor of HCCC at about the same time that the alleged ruling, hence this petition for review on certiorari filed by
advances were made. The trial court stated that it was plausible petitioner, assigning the following errors to the appealed decision
that Francisco concealed the fact of issuance of the checks from
private respondents in order to make it appear as if she were
accommodating private respondents, when in truth she was lending ISSUE: whether or not Francisco forged the signature of Ong on
HCCC its own money. the seven checks.

With regards to the Memorandum Agreement entered into between HELD: Petitioner claims that she was, in any event, authorized to
AFRDC and HCCC in Civil Case No. Q-24628, the trial court held sign Ong's name on the checks by virtue of the Certification
that the same did not make any mention of the forged checks since executed by Ong in her favor giving her the authority to collect all
private respondents were as of yet unaware of their existence, that the receivables of HCCC from the GSIS, including the questioned
checks. 12 Petitioner's alternative defense must similarly fail. The
Negotiable Instruments Law provides that where any person is 4/2/59 B-352680 P500.00 18
under obligation to indorse in a representative capacity, he may
indorse in such terms as to negative personal liability. 13 An agent, 4/20/59 A-156907 372.32 19
when so signing, should indicate that he is merely signing in behalf 4/24/59 A-156924 397.82 20
of the principal and must disclose the name of his principal;
otherwise he shall be held personally liable. 14 Even assuming that 5/4/59 B-364764 250.00 23
Francisco was authorized by HCCC to sign Ong's name, still,
5/6/59 B-364775 250.00 24
Francisco did not indorse the instrument in accordance with law.
Instead of signing Ong's name, Francisco should have signed her 2. Drawn by the Enrique Cortiz & Co. upon the Pacific Banking
own name and expressly indicated that she was signing as an agent Corporation and payable to the Inter-Island Gas Service, Inc. or
of HCCC. Thus, the Certification cannot be used by Francisco to bearer:
validate her act of forgery. dctai
4/13/59 B-335063 P 2108.70 21

4/27/59 B-335072 P2210.94 22

FORGERY
3. Drawn by the Luzon Tinsmith & Company upon the China
4. JAI-ALAI v BANK OF THE PHILIPPINE ISLANDS Banking Corporation and payable to the Inter-Island Gas Service,
Inc. or bearer:
This is a petition by the Jai-Alai Corporation of the Philippines
(hereinafter referred to as the petitioner) for review of the decision 5/18/59 VN430188 P940.80 25
of the Court of Appeals in C.A.-G.R. 34042-R dated June 25, 1968
in favor of the Bank of the Philippine Islands (hereinafter referred 4. Drawn by the Roxas Manufacturing, Inc. upon the Philippine
to as the respondent). National Bank and payable to the Inter-Island Gas Service, Inc.
order:
From April 2, 1959 to May 18, 1959, ten checks with a total face
value of P8,030.58 were deposited by the petitioner in its current 5/14/59 1860160 P 500.00 26
account with the respondent bank. The particulars of these checks
5/18/59 1860660 P 500.00 27
are as follows:
All the foregoing checks, which were acquired by the petitioner
1. Drawn by the Delta Engineering Service upon the Pacific
from one Antonio J. Ramirez, a sales agent of the Inter-Island Gas
Banking Corporation and payable to the Inter-Island Gas Service
and a regular bettor at jai-alai games, were, upon deposit,
Inc. or order:
temporarily credited to the petitioner's account in accordance with
Date Check Exhibit the clause printed on the deposit slips issued by the respondent and
which reads:
Deposited Number Amount Number
"Any credit allowed the depositor on the books of the Bank for part, debited the petitioner's current account and forwarded to the
checks or drafts hereby received for deposit, is provisional only, latter the checks containing the forged indorsements, which the
until such time as the proceeds thereof, in current funds or solvent petitioner, however, refused to accept.
credits, shall have been actually received by the Bank and the latter
reserves to itself the right to charge back the item to the account of On October 8, 1959 the petitioner drew against its current account
its depositor, at any time before that event, regardless of whether with the respondent a check for P135,000 payable to the order of
or not the item itself can be returned." the Mariano Olondriz y Cia. in payment of certain shares of stock.
The check was, however, dishonored by the respondent as its
About the latter part of July 1959, after Ramirez had resigned from records showed that as of October 8, 1959 the current account of
the Inter-Island Gas and after the checks had been submitted to the petitioner, after netting out the value of the checks P8,030.58)
inter-bank clearing, the Inter-Island Gas discovered that all the with the forged indorsements, had a balance of only P128,257.65.
indorsements made on the checks purportedly by its cashiers,
Santiago Amplayo and Vicenta Mucor (who were merely The petitioner then filed a complaint against the respondent with
authorized to deposit checks issued payable to the said company) the Court of First Instance of Manila, which was however
as well as the rubber stamp impression thereon reading "Inter- dismissed by the trial court after due trial, and as well by the Court
Island Gas Service, Inc.," were forgeries. In due time, the Inter- of Appeals, on appeal.
Island Gas advised the petitioner, the respondent, the drawers and Hence, the present recourse.
the drawee-banks of the said checks about the forgeries, and filed a
criminal complaint against Ramirez with the Office of the City The issues posed by the petitioner in the instant petition may be
Fiscal of Manila. 1 briefly stated as follows:

The respondent's cashier, Ramon Sarthou, upon receipt of the latter (a) Whether the respondent had the right to debit the petitioner's
of Inter-Island Gas dated August 31, 1959, called up the current account in the amount corresponding to the total value of
petitioner's cashier, Manuel Garcia, and advised the latter that in the checks in question after more than three months had elapsed
view of the circumstances he would debit the value of the checks from the date their value was credited to the petitioner's
against the petitioner's account as soon as they were returned by account:(b) Whether the respondent is estopped from claiming that
the respective drawee-banks. the amount of P8,030.58, representing the total value of the checks
with the forged indorsements, had not been properly credited to the
Meanwhile, the drawers of the checks, having been notified of the petitioner's account, since the same had already been paid by the
forgeries, demanded reimbursement to their respective accounts drawee-banks and received in due course by the respondent; and(c)
from the drawee-banks, which in turn demanded from the On the assumption that the respondent had improperly debited the
respondent, as collecting bank, the return of the amounts they had petitioner's current account, whether the latter is entitled to
paid on account thereof. When the drawee-banks returned the damages.
checks to the respondent, the latter paid their value which the
former in turn paid to the Inter-Island Gas. The respondent, for its These three issues interlock and will be resolved jointly.
In our opinion, the respondent acted within legal bounds when it appellate court, the indorsements on the checks had been forged
debited the petitioner's account. When the petitioner deposited the prior to their delivery to the petitioner. In legal contemplation,
checks with the respondent, the nature of the relationship created at therefore, the payments made by the drawee-banks to the
that stage was one of agency, that is, the bank was to collect from respondent on account of the said checks were ineffective; and,
the drawees of the checks the corresponding proceeds. It is true such being the case, the relationship of creditor and debtor between
that the respondent had already collected the proceeds of the the petitioner and the respondent had not been validly effected, the
checks when it debited the petitioner's account, so that following checks not having been properly and legitimately converted into
the rule in Gullas vs. Philippine National Bank 2 it might be cash. 4
argued that the relationship between the parties had become that of
creditor and debtor as to preclude the respondent from using the In Great Eastern Life Ins. Co. vs. Hongkong & Shanghai Bank, 5
petitioner's funds to make payments not authorized by the latter. It the Court ruled that it is the obligation of the collecting bank to
is our view nonetheless that no creditor-debtor relationship was reimburse the drawee-bank the value of the checks subsequently
created between the parties. found to contain the forged indorsement of the payee. The reason
is that the bank with which the check was deposited has no right to
pay the sum stated therein to the forger "or anyone else upon a
forged signature." "It was its duty to know," said the Court, "that
Section 23 of the Negotiable Instruments Law (Act 2031) states [the payee's] endorsement was genuine before cashing the check."
that 3 The petitioner must in turn shoulder the loss of the amounts which
"When a signature is forged or made without the authority of the the respondent; as its collecting agent, had to reimburse to the
person whose signature it purports to be, it is wholly inoperative, drawee-banks.
and no right to retain the instrument, or to give a discharge We do not consider material for the purposes of the case at bar that
therefor, or to enforce payment thereof against any party thereto, more than three months had elapsed since the proceeds of the
can be acquired through or under such signature, unless the party checks in question were collected by the respondent. The record
against whom it is sought to enforce such right is precluded from shows that the respondent had acted promptly after being informed
setting up the forgery or want of authority." that the indorsements on the checks were forged. Moreover, having
Since under the foregoing provision, a forged signature in a received the checks merely for collection and deposit, the
negotiable instrument is wholly inoperative and no right to respondent cannot he expected to know or ascertain the
discharge it or enforce its payment can be acquired through or genuineness of all prior indorsements on the said checks. Indeed,
under the forged signature except against a party who cannot having itself indorsed them to the respondent in accordance with
invoke the forgery, it stands to reason, upon the facts of record, the rules and practices of commercial banks, of which the Court
that the respondent, as a collecting bank which indorsed the checks takes due cognizance, the petitioner is deemed to have given the
to the drawee-banks for clearing, should be liable to the latter for warranty prescribed in Section 66 of the Negotiable Instruments
reimbursement, for, as found by the court a quo and by the
Law that every single one of those checks "is genuine and in all petitioner ostensibly on the strength of the payee's cashiers'
respects what it purports to be.". indorsements.

The petitioner was, moreover, grossly recreant in accepting the At all events, under Section 67 of the Negotiable Instruments Law,
checks in question from Ramirez. It could not have escaped the "Where a person places his indorsement on an instrument
attention of the petitioner that the payee of all the checks was a negotiable by delivery he incurs all the liability of an indorser,"
corporation the Inter-Island Gas Service, Inc. Yet, the petitioner and under Section 66 of the same statute a general indorser
cashed these checks to a mere individual who was admittedly a warrants that the instrument "is genuine and in all respects what it
habitue at its jai-alai games without making any inquiry as to his purports to be." Considering that the petitioner indorsed the said
authority to exchange checks belonging to the payee-corporation. checks when it deposited them with the respondent, the petitioner
In Insular Drug Co. vs. National 6 the Court made the as an indorser guaranteed the genuineness of all prior indorsements
pronouncement that. thereon. The respondent which relied upon the petitioner's
warranty should not be held liable for the resulting loss. This
". . . The right of an agent to indorse commercial paper is a very conclusion applied similarly to exh. 22 which is an uncrossed
responsible power and will not be lightly inferred. A salesman with bearer instrument, for under Section 65 of the Negotiable
authority to collect money belonging to his principal does not have Instrument Law. "Every person negotiating an instrument by
the implied authority to indorse checks received in payment. Any delivery . . . warrants (a) That the instrument is genuine and in all
person taking checks made payable to a corporation, which can act respects what it purports to be." Under that same section this
only by agents, does so at his peril, and must abide by the warranty "extends in favor of no holder other than the immediate
consequences if the agent who indorses the same is without transferee," which, in the case at bar, would be the respondent.
authority." (underscoring supplied)
The provision in the deposit slip issued by the respondent which
It must be noted further that three of the checks in question are stipulates that it "reserves to itself the right to charge back the item
crossed checks, namely, exhs. 21, 25 and 27, which may only be to the account of its depositor," at any time before "current funds
deposited, but not encashed; yet, the petitioner negligently or solvent credits shall have been actually received by the Bank,"
accepted them for cash. That two of the crossed checks, namely, would not materially affect the conclusion we have reached. That
exhs. 21 and 25, are bearer instruments would not, in our view, stipulation prescribes that there must be an actual receipt by the
exculpate the petitioner from liability with respect to them. The bank of current funds or solvent credits; but as we have earlier
fact that they are bearer checks and at the same time crossed indicated the transfer by the drawee-banks of funds to the
checks should have aroused the petitioner's suspicion as to the title respondent on account of the checks in question was ineffectual
of Ramirez over them and his authority to cash them (apparently to because made under the mistaken and valid assumption that the
purchase jai-alai tickets from the petitioner), it appearing on their indorsements of the payee thereon were genuine. Under article
face that a corporate entity the Inter Island Gas Service, Inc. 2154 of the New Civil Code "If something is received when there
was the payee thereof and Ramirez delivered the said checks to the is no right to demand it and it was unduly delivered through
mistake, the obligation to return it arises." There was, therefore, in On March 21, 1967, the City Court of Manila rendered judgment
contemplation of law, no valid payment of money made by the for the plaintiff Bank against defendant Ebrada; for Third-Party
drawee-banks to the respondent on account of the questioned plaintiff against Third-Party defendant, Adelaida Dominguez, and
checks. for Fourth-Party plaintiff against Fourth-Party defendant, Justina
Tinio.

From the judgment of the City Court, defendant Ebrada took an

5. REPUBLIC BANK v EBRADA appeal to the Court of First Instance of Manila where the parties
On or about February 27, 1963 defendant Mauricia T. Ebrada, submitted a partial stipulation of facts as follows:
encashed Back Pay Check No. 508060 dated January 15, 1963 for "COME NOW the undersigned counsel for the plaintiff, defendant,
P1,246.08 at the main office of the plaintiff Republic Bank at Third-Party defendant and Fourth-Party plaintiff and unto this
Escolta, Manila. The check was issued by the Bureau of Treasury. Honorable Court most respectfully submit the following:
1 Plaintiff Bank was later advised by the said bureau that the
alleged indorsement on the reverse side of the aforesaid check by PARTIAL STIPULATION OF FACTS
the payee, "Martin Lorenzo" was a forgery 2 since the latter had
allegedly died as of July 14, 1952. 3 Plaintiff Bank was then 1. That they admit their respective capacities to sue and be sued;
requested by the Bureau of Treasury to refund the amount of 2. That on January 15, 1963 the Treasury of the Philippines issued
P1,246.08. 4 To recover what it had refunded to the Bureau of its Check No. BP-508060, payable to the order of one MARTIN
Treasury, plaintiff Bank made verbal and formal demands upon LORENZO, in the sum of P1,246.08, and drawn on the Republic
defendant Ebrada to account for the sum of P1,246.08, but said Bank, plaintiff herein, which check will be marked as Exhibit "A"
defendant refused to do so. So plaintiff Bank sued defendant for the plaintiff;
Ebrada before the City Court of Manila.
3. That the back side of aforementioned check hears the following
On July 11, 1966, defendant Ebrada filed her answer denying the signatures, in this order:
material allegations of the complaint and as affirmative defenses
alleged that she was a holder in due course of the check in 1) MARTIN LORENZO:
question, or at the very least, has acquired her rights from a holder
2) RAMON R. LORENZO;
in due course and therefore entitled to the proceeds thereof. She
also alleged that the plaintiff Bank has no cause of action against 3) DELIA DOMINGUEZ; and
her; that it is in estoppel, or so negligent as not to be entitled to
recover anything from her; and filed a Third-Party complaint 4) MAURICIA T. EBRADA;
against Adelaida Dominguez who, in turn, filed a Fourth-Party
4. That the aforementioned check was delivered to the defendant
complaint against Justina Tinio.
MAURICIA T. EBRADA by the Third-Party defendant and
Fourth-Party plaintiff ADELAIDA DOMINGUEZ, for the purpose "Every person negotiating an instrument by delivery or by
of encashment; qualified indorsement, warrants:

5. That the signature of defendant MAURICIA T. EBRADA was (a) That the instrument is genuine and in all respects what it
affixed on said check on February 27, 1963 when she encashed it purports to be.
with the plaintiff Bank;
(b) That she has good title to it."
6. That immediately after defendant MAURICIA T. EBRADA
received the cash proceeds of said check in the sum of P1,246.08 xxx xxx xxx
from the plaintiff Bank, she immediately turned over the said and under Section 65 of the same Act:
amount to the third-party defendant and fourth-party plaintiff
ADELAIDA DOMINGUEZ, who in turn handed the said amount "Every indorser who indorses without qualification warrants to all
to the fourth-party defendant JUSTINA TINIO on the same date, subsequent holders in due course:
as evidenced by the receipt signed by her which will be marked as
(a) The matters and things mentioned in subdivisions (a), (b), and
Exhibit "1-Dominguez"; and
(c) of the next preceding sections;
7. That the parties hereto reserve the right to present evidence on
(b) That the instrument is at the time of his indorsement valid and
any other fact not covered by the foregoing stipulations.
subsisting."
Manila, Philippines, June 6, 1969."
It turned out, however, that the signature of the original payee of
Based on the foregoing stipulation of facts and the documentary the check, Martin Lorenzo was a forgery because he was already
evidence presented, the trial court rendered a decision against dead almost 11 years before the check in question was issued by
Ebrada the Bureau of Treasury. Under Section 23 of the Negotiable
Instruments Law (Act 2031):
ISSUE:
"When a signature is forged or made without the authority of the
HELD: From the stipulation of facts it is admitted that the check in person whose signature it purports to be, it is wholly inoperative,
question was delivered to defendant-appellant by Adelaida and no right to retain the instruments, or to give a discharge thereof
Dominguez for the purpose of encashment and that her signature against any party thereto, can be acquired through or under such
was affixed on said check when she cashed it with the plaintiff signature unless the party against whom it is sought to enforce
Bank. Likewise it is admitted that defendant-appellant was the last such right is precluded from setting up the forgery or want of
indorser of the said check. As such indorser, she was supposed to authority."
have warranted that she has good title to said check; for under
Section 5 of the Negotiable Instruments Law: 6 It is clear from the provision that where the signature on a
negotiable instrument if forged, the negotiation of the check is
without force or effect. But does this mean that the existence of circulation before presentation he impliedly asserts that he has
one forged signature therein will render void all the other performed his duty and the drawee who has paid the forged check,
negotiations of the check with respect to the other parties whose without actual negligence on his part, may recover the money paid
signature are genuine? from such negligent purchasers. In such cases the recovery is
permitted because although the drawee was in a way negligent in
In the case of Beam vs. Farrel, 135 Iowa 670, 113 N.W. 590, failing to detect the forgery, yet if the encasher of the check had
where a check has several indorsements on it, it was held that it is performed his duty, the forgery would in all probability, have been
only the negotiation based on the forged or unauthorized signature detected and the fraud defeated. The reason for allowing the
which is inoperative. Applying this principle to the case before Us, drawee bank to recover from the encasher is:
it can be safely concluded that it is only the negotiation predicated
on the forged indorsement that should be declared inoperative. "Every one with even the least experience in business knows that
This means that the negotiation of the check in question from no business man would accept a check in exchange for money or
Martin Lorenzo, the original payee, to Ramon R. Lorenzo, the goods unless he is satisfied that the check is genuine. He accepts it
second indorser, should be declared of no effect, but the only because he has proof that it is genuine, or because he has
negotiation of the aforesaid check from Ramon R. Lorenzo to sufficient confidence in the honesty and financial responsibility of
Adelaida Dominguez, the third indorser, and from Adelaida the person who vouches for it. If he is deceived he has suffered a
Dominguez to the defendant-appellant who did not know of the loss of his cash or goods through his own mistake. His own
forgery, should be considered valid and enforceable, barring any credulity or recklessness, or misplaced confidence was the sole
claim of forgery. cause of the loss. Why should he be permitted to shift the loss due
to his own fault in assuming the risk, upon the drawee, simply
What happens then, if, after the drawee bank has paid the amount because of the accidental circumstance that the drawee afterwards
of the check to the holder thereof, it was discovered that the failed to detect the forgery when the check was presented?" 8
signature of the payee was forged? Can the drawee bank recover
from the one who encashed the check? Similarly, in the case before Us, the defendant-appellant, upon
receiving the check in question from Adelaida Dominguez, was
In the case of State v. Broadway Mut. Bank, 282 S.W. 196, 197, it duty-bound to ascertain whether the check in question was genuine
was held that the drawee of a check can recover from the holder before presenting it to plaintiff Bank for payment. Her failure to do
the money paid to him on a forged instrument. It is not supposed to so makes her liable for the loss and the plaintiff Bank may recover
be its duty to ascertain whether the signatures of the payee or from her the money she received for the check. As reasoned out
indorsers are genuine or not. This is because the indorser is above, had she performed the duty of ascertaining the genuineness
supposed to warrant to the drawee that the signatures of the payee of the check, in all probability the forgery would have been
and previous indorsers are genuine, warranty not extending only to detected and the fraud defeated.
holders in due course. One who purchases a check or draft is
bound to satisfy himself that the paper is genuine and that by With the foregoing doctrine We are to concede that the plaintiff
indorsing it or presenting it for payment or putting it into Bank should suffer the loss when it paid the amount of the check in
question to defendant-appellant, but it has the remedy to recover March, April and May 1969: 23 checks were prepared,
from the latter the amount it paid to her. Although the defendant- processed, issued and released by NWSA, all of which
appellant to whom the plaintiff Bank paid the check was not were paid and cleared by PNB and debited by PNB against
proven to be the author of the supposed forgery, yet as last indorser NWSA Account No. 6
of the check, she has warranted that she has good title to it 10 even deposited by the fictitious payees Raul Dizon, Arturo Sison
if in fact she did not have it because the payee of the check was and Antonio Mendoza in their respective current accounts
already dead 11 years before the check was issued. The fact that with the Philippine Commercial and Industrial Bank
immediately after receiving the cash proceeds of the check in (PCIB) and Philippine Bank of Commerce (PBC)
question in the amount of P1,246.08 from the plaintiff Bank, At the time of their presentation to PNB these checks bear
defendant-appellant immediately turned over said amount to the standard indorsement which reads 'all prior indorsement
Adelaida Dominguez (Third-Party defendant and the Fourth-Party and/or lack of endorsement guaranteed'
plaintiff) who in turn handed the amount to Justina Tinio on the NWSA filed against PNB before the CFI
same date would not exempt her from liability because by doing PNB also filed a 3rd party complaint against the
so, she acted as an accommodation party in the check for which negotiating banks PBC and PCIB on the ground that they
she is also liable under Section 29 of the Negotiable Instruments failed to ascertain the Identity of the payees and their title
Law (Act 231), thus: to the checks which were deposited in the respective new
accounts of the payees with them
February 6, 1976: CFI favored MWSS
6. MWSS v CA CA: reversed and favored PNB
applied Section 24 of the Negotiable Instruments Law
FACTS:
ISSUE: W/N MWSS can can claim against PNB
Metropolitan Waterworks and Sewerage System (MWSS)
is a GOCC and successor-in- interest of the defunct HELD: NO. CA reversed.
NWSA.
The authorized signature for PNB Account No. 6 were Every negotiable instrument is deemed prima facie to have
those of MWSS treasurer Jose Sanchez, its auditor Pedro been issued for valuable consideration and every person
Aguilar, and its acting General Manager Victor L. Recio. whose signature appears thereon to have become a party
Specimen signatures were submitted by the MWSS to and thereto for value
on file with the PNB A bank is bound to know the signatures of its customers;
By special arrangement with the PNB, the MWSS used and if it pays a forged check it must be considered as
personalized checks in drawing from this account. making the payment out of its obligation funds, and cannot
printed for MWSS by its printer, F. Mesina Enterprises ordinarily charge the amount so paid to the account of the
depositor whose name was forged.
 NBI showed that the MWSS fraud was an "inside job" and the printing of its checks and of the inks and pens used in
that the MWSS' delay in the reconciliation of bank signing the same
statements and the laxity and loose records control in the 5. send a representative to the printing office during the
printing of its personalized checks facilitated the fraud. printing of said checks
These reports did not touch on the inherent qualities of the 6. to reconcile the bank statements with its own records
signatures which are indispensable in the determination of MWSS requested the PNB to discontinue the practice of
the existence of forgery. There must be conclusive findings mailing the bank statements, but instead to deliver it to Mr.
that there is a variance in the inherent characteristics of the Emiliano Zaporteza. However, he was unreasonably
signatures and that they were written by 2 or more different delayed in taking prompt deliveries of the bank statements
persons. and credit and debit memos. As a consequence, Mr.
Forgery cannot be presumed. It must be established by Zaporteza failed to reconcile the bank statements. If Mr.
clear, positive, and convincing evidence. This was not done Zaporteza had not been remiss in his duty of taking the
in the present case. bank statements and reconciling them with the petitioner's
SEC. 23. FORGED SIGNATURE; EFFECT OF.- When records, the fraudulent encashments of the first checks
the signature is forged or made without authority of the should have been discovered, and further frauds prevented.
person whose signature it purports to be, it is wholly This negligence was, therefore, the proximate cause of the
inoperative, and no right to retain the instrument, or to give failure to discover the fraud.
a discharge therefor, or to enforce payment thereof against One factor which facilitate this fraud was the delay in the
any party thereto can be acquired through or under such reconciliation of PNB statements with the NAWASA bank
signature unless the party against whom it is sought to accounts. x x x. Had the NAWASA representative come to
enforce such right is precluded from setting up the forgery the PNB early for the statements and had the bank been
or want of authority. advised promptly of the reported bogus check, the
Gross negligence in the printing of its personalized checks - negotiation of practically all of the remaining checks on
MWSS failed to May, 1969 could have been prevented.
1. give its printer, Mesina Enterprises, specific instructions The records likewise show that the petitioner failed to
relative to the safekeeping and disposition of excess forms, provide appropriate security measures over its own records
check vouchers, and safety papers thereby laying confidential records open to unauthorized
2. retrieve from its printer all spoiled check forms persons. The petitioner's own Fact Finding Committee, in
3. provide any control regarding the paper used in the printing its report submitted to their General manager underscored
of said checks this laxity of records control. It observed that the "office of
4. furnish the respondent drawee bank with samples of Mr. Ongtengco (Cashier No. VI of the Treasury
typewriting, cheek writing, and print used by its printer in Department at the NAWASA) is quite open to any person
 known to him or his staff members and that the check non-negotiable checks are within the ambit of its jurisdiction.
writer is merely on top of his table Further, the participation of the two banks in the clearing
Even if the 23 checks in question are considered forgeries, operations is submission to the jurisdiction of the PCHC.
considering the petitioner's gross negligence, it is barred
Petitioner is likewise estopped from raising the non-
from setting up the defense of forgery under Section 23 of
negotiability of the checks in issue. It stamped its guarantee
the Negotiable Instruments Law
at the back of the checks and subsequently presented it for
PNB had taken the necessary measures in the detection of
clearing and it was in the basis of these endorsements by the
forged checks and the prevention of their fraudulent
petitioner that the proceeds were credited in its clearing
encashment. In fact, long before the encashment of the 23
account. The petitioner cannot now deny its liability as it assumed
checks in question, the it had issued constant reminders to
the liability of an indorser by stamping its guarantee at the
all Current Account Bookkeepers informing them of the
back of the checks.
activities of forgery syndicates.
Under the circumstances, MWSS was in a better position to Furthermore, the bank cannot escape liability of an indorser of a
detect and prevent the fraudulent encashment of its checks.. check and which may turn out to be a forged indorsement.
Whenever a bank treats the signature at the back of the checks as
indorsements and thus logically guarantees the same as such
there can be no doubt that said bank had considered the
checks as negotiable.
7. BANCO DE ORO v EQUITABLE BANKING
CORPORATION A long line of cases also held that in the matter of
forgery in endorsements, it is the collecting bank that
FACTS: BDO drew checks payable to member establishments. generally suffers the loss because it had the dutyh to ascertain
Subsequently, the checks were deposited in Trencios account the genuineness of all prior indorsements considering that the
with Equitable. The checks were sent for clearing and was act of presenting the check for payment to the drawee is an
thereafter cleared. Afterwards, BDO discovered that the assertion that the party making the presentment has done its duty to
indorsements in the back of the checks were forged. It then ascertain the genuineness of the indorsements.
demanded that Equitable credit its account but the latter
refused to do so. This prompted BDO to file a complaint against
Equitable and PCHC. The trial court and RTC held in favor of the
8. GEMPESAW v CA
Equitable and PCHC.
Gempensaw was the owner of many grocery stores. She paid her
HELD: First, PCHC has jurisdiction over the case in question.
suppliers through the issuance of checks drawn against her
The articles of incorporation of PHHC extended its operation to
checking account with respondent bank. The checks were
clearing checks and other clearing items. No doubt transactions on
prepared by her bookkeeper Galang. In the signing of the
checks prepared by Galang, Gempensaw didn't bother herself in checks she signed the invoices attached thereto. And though
verifying to whom the checks were being paid and if the she received her bank statements, she didn't carefully examine
issuances were necessary. She didn't even verify the returned the same to double-check her payments. Petitioner didn't
checks of the bank when the latter notifies her of the same. exercise reasonable diligence which eventually led to the fruition
During her two years in business, there were incidents shown of her bookkeepers fraudulent schemes.
that the amounts paid for were in excess of what should have
been paid. It was also shown that even if the checks were crossed,
the intended payees didn't receive the amount of the checks. This 9. ASSOCIATED BANK v CA
prompted Gempensaw to demand the bank to credit her
account for the amount of the forged checks. The bank refused to The province of Tarlac maintains an account with PNB-
do so and this prompted her to file the case against the bank. Tarlac. Part of its funds is appropriated for the benefit of
Concepcion Emergency Hospital. During a post-audit done by
HELD: Forgery is a real defense by the party whose signature was the province, it was found out that 30 of its checks werent
forged. A party whose signature was forged was never a party and received by the hospital. Upon further investigation, it was found
never gave his consent to the instrument. Since his signature out that the checks were encashed by Pangilinan who was a former
doesnt appear in the instrument, the same cannot be enforced cashier and administrative officer of the hospital through
against him even by a holder in due course. The drawee bank forged indorsements. This prompted the provincial
cannot charge the account of the drawer whose signature was treasurer to ask for
forged because he never gave the bank the order to pay.
reimbursement from PNB and thereafter, PNB from
In the case at bar the checks were filled up by petitioners Associated Bank. As the two banks didn't want to reimburse, an
employee Galang and were later given to her for signature. Her action was filed against them.
signing the checks made the negotiable instruments complete.
Prior to signing of the checks, there was no valid contract yet. HELD: There is a distinction on forged indorsements with
Petitioner completed the checks by signing them and thereafter regard bearer instruments and instruments payable to order.
authorized Galang to deliver the same to their respective payees.
With instruments payable to bearer, the signature of the payee or
The checks were then indorsed, forged indorsements thereon.
holder is unnecessary to pass title to the instrument. Hence, when
As a rule, a drawee bank who has paid a check on which an the indorsement is a forgery, only the person whose signature
indorsement has been forged cannot debit the account of a is forged can raise the defense of forgery against holder in due
drawer for the amount of said check. An exception to this course.
rule is when the drawer is guilty of negligence which causes
In instruments payable to order, the signature of the rightful
the bank to honor such checks. Petitioner in this case has relied
holder is essential to transfer title to the same instrument.
solely on the honesty and loyalty of her bookkeeper and
When the holders signature is forged, all parties prior to the
never bothered to verify the accuracy of the amounts of the
forgery may raise the real defense of forgery against all parties 10. METROBANK v FIRST NATIONAL CITY BANK
subsequent thereto. In connection to this, an indorser warrants
August 25, 1964: Check dated July 8, 1964 for P50,000.00,
that the instrument is genuine. A collecting bank is such an
indorser. So even if the indorsement is forged, the collecting payable to CASH, drawn by Joaquin Cunanan & Company
bank is bound by his warranties as an indorser and cannot set up on First National City Bank (FNCB) was deposited with
Metropolitan Bank and Trust Company (Metro Bank) by
the defense of forgery as against the drawee bank. Salvador Sales.

Furthermore, in cases involving checks with forged indorsements, Earlier that day, Sales had opened a current account
such as the case at bar, the chain of liability doesn't end with with Metro Bank depositing P500.00 in cash
the drawee bank. The drawee bank may not debit the
Metro Bank immediately sent the cash check to the
account of the drawer but may generally pass liability back
through the collection chain to the party who took from the Clearing House of the Central Bank with the
forger and of course, the forger himself, if available. In following words stamped at the back of the check:
other words, the drawee bank can seek reimbursement or a return Metropolitan Bank and Trust Company
of the amount it paid from the collecting bank or person. Cleared (illegible) office All prior
The collecting bank generally suffers the loss because it has endorsements and/or Lack of endorsements
te duty to ascertain the genuineness of all prior Guaranteed.
endorsements considering that the act of presenting the
check for payment to the drawee is an assertion that the The check was cleared the same day. Private
party making the presentment has done its duty to ascertain respondent paid petitioner through clearing the
the amount of P50,000.00, and Sales was credited with
the said amount in his deposit with Metro Bank.
genuineness of the indorsements.
August 26, 1964: Sales made his 1st withdrawal of P480.00
With regard the issue of delay, a delay in informing the from his current account
bank of the forgery, which deprives it of the opportunity to go
after the forger, signifies negligence on the part of the drawee August 28, 1964: he withdrew P32,100.00
bank and will preclude it from claiming reimbursement. In this
August 31, 1964: he withdrew the balance of P17,920 and
case, PNB wasn't guilty of any negligent delay. Its delay hasn't
closed his account with Metro Bank
prejudiced Associated Bank in any way because even if there
wasn't delay, the fact that there was nothing left of the September 3, 1964: FNCB returned cancelled Check to
account of Pangilinan, there couldn't be anymore reimbursement. drawer Joaquin Cunanan & Company, together with the
monthly statement of the company's account with FNCB.
 notified FNCB that the check had been altered of P17,920.00 by Salvador Sales, Metro Bank withheld
payment and first verified, through its Assistant Cashier
actual amount of P50.00 was raised to Federico Uy, the regularity and genuineness of the check
P50,000.00 deposit from Marcelo Mirasol, Department Officer of
name of the payee, Manila Polo Club, was FNCB, because its (Metro Bank) attention was called by
superimposed the word CASH. the fast movement of the account

September 10, 1964: FNCB wrote Metro Bank asking for

reimbursement

June 29, 1965: FNCB filed for recovery

11. REPUBLIC BANK v CA
CA affirmed Trial Court: Metro Bank to reimburse FNCB San Miguel Corporation drew a dividend check worth P240 on its
account in First National City Bank in favor of J. Roberto Delgado,
a stock holder. The amount on its face was fraudulently and
ISSUE: W/N Metrobank should reimsburse FNCB for the altered without authority of the drawer, altered by increasing it from P240
amount as indorser to P9, 240. The check was indorsed and deposited by Delgado to
his account with Republic bank. Republic endorsed the check to
FNCB and presented I for payment through the Central Bank
HELD: NO. FNCB liable.
Clearing House. FNCB paid P9, 240 to the Republic through the
Under the procedure prescribed, the drawee bank receiving Central Bank Clearing House. SMC notified FNCB of trhe
the check for clearing from the Central Bank Clearing material alteration in the check in question. FNCB informed
House must return the check to the collecting bank within Republic with regard to the alteration nand forgery of the
the 24-hour period if the check is defective for any reason. - endorsement of Delgado. By the, Delgado had already withdrawn
FNCB failed to do so his account from the republic. FNCB demanded that Republic
refund the P9, 240. Trial court rendered judgment in favor of
indorsement must be read together with the 24-hour FNCB and it was affirmed by the Court of Appeals.
regulation on clearing House Operations of the
Central Bank Issue: Whether Republic, as the collecting bank, is protected, by
24-hour clearing house rule, found in CB circular No. 9, as
Metro Bank can not be held liable for the payment of the amended, from liability to refund the amount paid by FNCB, as
altered check. drawee of the SMC dividend check.
Moreover, FNCB did not deny the allegation of Metro Held: No. The 24-hour clearing house rule is valid rule applicable
Bank that before it allowed the withdrawal of the balance to commercial banks. It is true that when an indorsement is forged,
the collecting bank or last endorser, as general rule, bears the loss. Rivera, the general ledger accountant of Ford, and was replaced by
But the unqualified endorsement of the collecting bank on the a managers check. Alleged members of a syndicate deposited the
check should be read together with the 24-hour regulation on the two managers checks with Pacific Banking Corporation. Ford
clearing house operation. Thus, when the drawee bank fails to filed a third party complaint against Rivera and PBC. The case
return a forged or altered check to the collecting bank is absolved against PBC was dismissed. The case against Rivera was likewise
from liability. Unless an alteration is attributable to the fault or dismissed because summons could not be served. The trial court
negligence of the drawer himself, such as when he leaves spaces held Citibank and PCIB jointly and severally liable to Ford, but the
on the check which would allow the fraudulent insertion of Court of Appeals only held PCIB liable.
additional numerals in the amount appearing thereon, the remedy
of the drawee bank that negligently clears a forged and/or honor II. G. R. No. 128604
altered check for payment is against the party responsible for the Ford drew two checks in favor of the Commissioner of Internal
forgery or alteration, otherwise, it bears the loss. It may not charge Revenue, amounting to P5,851,706.37 and P6,311,591.73. Both
the amount so paid to the account of the drawer, if the latter was are crossed checks payable to payees account only. The checks
free from blame, nor recover it from the collecting bank is the never reached BIR, so plaintiff was compelled to make second
latter made payment after proper clearance from the drawee. payments. Plaintiff instituted an action for recovery against PCIB
and Citibank.

On investigation of NBI, the modus operandi was discovered.

12. PHILIPPINE CCOMMERCIAL INTERNATIONAL
Gorofredo Rivera made the checks but instead of delivering them
BANK v CA
to BIR, passed it to Castro, who was the manager of PCIB San
This case is composed of three consolidated petitions involving Andres. Castro opened a checking account in the name of a
several checks, payable to the Bureau of Internal Revenue, but was fictitious person Reynaldo Reyes. Castro deposited a worthless
embezzled allegedly by an organized syndicate. Bank of America check with the same amount as that issued by
Ford. While being routed to the Central Bank for clearing, the
I. G. R. Nos. 121413 and 121479 worthless check was replaced by the genuine one from Ford.
On October 19, 1977, plaintiff Ford issued a Citibank check The trial court absolved PCIB and held Citibank liable, which
amounting to P4,746,114.41 in favor of the Commissioner of decision was affirmed in toto by the Court of Appeals.
Internal Revenue for the payment of manufacturers taxes. The
check was deposited with defendant IBAA (now PCIB), Issues:(1) Whether there is contributory negligence on the part of
subsequently cleared the the Central Bank, and paid by Citibank to Ford
IBAA. The proceeds never reached BIR, so plaintiff was
compelled to make a second payment. Defendant refused to (2) Has petitioner Ford the right to recover from the collecting
reimburse plaintiff, and so the latter filed a complaint. An bank (PCIBank) and the drawee bank (Citibank) the value of the
investigation revealed that the check was recalled by Godofredo
checks intended as payment to the Commissioner of Internal Check No. SN-04867 was duly authorized, showed lack of care
Revenue? and prudence required in the circumstances. Furthermore, it was
admitted that PCIBank is authorized to collect the payment of
Held: (1) The general rule is that if the master is injured by the taxpayers in behalf of the BIR. As an agent of BIR, PCIBank is
negligence of a third person and by the concuring contributory duty bound to consult its principal regarding the unwarranted
negligence of his own servant or agent, the latter's negligence is instructions given by the payor or its agent. It is a well-settled rule
imputed to his superior and will defeat the superior's action against that the relationship between the payee or holder of commercial
the third person, asuming, of course that the contributory paper and the bank to which it is sent for collection is, in the
negligence was the proximate cause of the injury of which absence of an argreement to the contrary, that of principal and
complaint is made. As defined, proximate cause is that which, in agent. A bank which receives such paper for collection is the agent
the natural and continuous sequence, unbroken by any efficient, of the payee or holder.
intervening cause produces the injury and without the result would
not have occurred. It appears that although the employees of Ford Indeed, the crossing of the check with the phrase "Payee's Account
initiated the transactions attributable to an organized syndicate, in Only," is a warning that the check should be deposited only in the
our view, their actions were not the proximate cause of encashing account of the CIR. Thus, it is the duty of the collecting bank
the checks payable to the CIR. The degree of Ford's negligence, if PCIBank to ascertain that the check be deposited in payee's
any, could not be characterized as the proximate cause of the injury account only. Therefore, it is the collecting bank (PCIBank) which
to the parties. The mere fact that the forgery was committed by a is bound to scrutinize the check and to know its depositors before it
drawer-payor's confidential employee or agent, who by virtue of could make the clearing indorsement "all prior indorsements
his position had unusual facilities for perpertrating the fraud and and/or lack of indorsement guaranteed".
imposing the forged paper upon the bank, does notentitle the bank
toshift the loss to the drawer-payor, in the absence of some Lastly, banking business requires that the one who first cashes and
circumstance raising estoppel against the drawer. This rule negotiates the check must take some precautions to learn whether
likewise applies to the checks fraudulently negotiated or diverted or not it is genuine. And if the one cashing the check through
by the confidential employees who hold them in their possession. indifference or other circumstance assists the forger in committing
the fraud, he should not be permitted to retain the proceeds of the
(2) We have to scrutinize, separately, PCIBank's share of check from the drawee whose sole fault was that it did not discover
negligence when the syndicate achieved its ultimate agenda of the forgery or the defect in the title of the person negotiating the
stealing the proceeds of these checks. instrument before paying the check. For this reason, a bank which
cashes a check drawn upon another bank, without requiring proof
a. G. R. Nos. 121413 and 121479 as to the identity of persons presenting it, or making inquiries with
On record, PCIBank failed to verify the authority of Mr. Rivera to regard to them, cannot hold the proceeds against the drawee when
negotiate the checks. The neglect of PCIBank employees to verify the proceeds of the checks were afterwards diverted to the hands of
whether his letter requesting for the replacement of the Citibank a third party. In such cases the drawee bank has a right to believe
that the cashing bank (or the collecting bank) had, by the usual both were negligent in the selection and supervision of their
proper investigation, satisfied itself of the authenticity of the employees resulting in the encashment of Citibank Check Nos. SN
negotiation of the checks. Thus, one who encashed a check which 10597 AND 16508. Thus, we are constrained to hold them equally
had been forged or diverted and in turn received payment thereon liable for the loss of the proceeds of said checks issued by Ford in
from the drawee, is guilty of negligence which proximately favor of the CIR.
contributed to the success of the fraud practiced on the drawee
bank. The latter may recover from the holder the money paid on
the check. 13. RAMON ILUSORIO v CA
b. G. R. No. 128604 Ilusorio was a businessman who was in charge of 20 or so
In this case, there was no evidence presented confirming the corporations. He was a depositor in good standing of Manila
conscious participation of PCIBank in the embezzlement. As a Banking Corporation. As he was in charge of a big number of
general rule, however, a banking corporation is liable for the corporations, he was usually out of the country for business. He
wrongful or tortuous acts and declarations of its officers or agents then entrusted his credit cards, checkbook, blank checks,
within the course and scope of their employment. A bank will be passbooks, etc to his secretary, Katherine Eugenio. Eugenio was
held liable for the negligence of its officers or agents when acting also in charge of verifying and reconciling the statements of
within the course and scope of their employment. It may be liable Ilusorios checking account.
for the tortuous acts of its officers even as regards that species of Eugenio was able to encash and deposit to her personal account
tort of which malice is an essential element. In this case, we find a checks drawn against Ilusorios account with an aggregate amount
situation where the PCIBank appears also to be the victim of the of 119K. Ilusorio didnt bother to check his statement of account
scheme hatched by a syndicate in which its own management until a business partner informed him that he saw Eugenio using
employees had participated. But in this case, responsibility for his credit cards. Ilusorio then fired her and instituted criminal case
negligence does not lie on PCIBank's shoulders alone. of Estafa thru falsification against Eugenio. Manila Banking Corp.
Citibank failed to notice and verify the absence of the clearing also instituted a complaint of estafa against Eugenio based on the
stamps. For this reason, Citibank had indeed failed to perform what affidavit of Dante Razon, an employee. Razon stated that he
was incumbent upon it, which is to ensure that the amount of the personally examined and scrutinized the encashed checks in
checks should be paid only to its designated payee. The point is accordance with their verification procedures.
that as a business affected with public interest and because of the Manila Bank sought the expertise of NBI in determining the
nature of its functions, the bank is under obligation to treat the genuineness of the checks but Ilusorio failed to submit specimen
accounts of its depositors with meticulous care, always having in signatures and thus, NBI could not conduct the examination.
mind the fiduciary nature of their relationship. Thus, invoking the
doctrine of comparative negligence, we are of the view that both Issue: W/N Manila Bank is liable for damages for failing to detect
PCIBank and Citibank failed in their respective obligations and a forged check
Held: No. To be entitled to damages, Ilusorio has the burden of one Roberto Gonzaga in the Makati Branch of Far East Bank. The
poving that the bank was negligent in failing to detect the check was certified to be true by Jose Sempio, the assistant
discrepancy in the signatures on the checks. Ilusorio had to accountant of Samsung, who was also present during the time the
establish the fact of forgery which he failed to do by failing to check was cashed. Later however it was discovered that no such
submit his specimen signatures for NBI to conclusively establish check was ever approved by the Samsungs head accountant, the
forgery. president of the company also never signed any such check.

Furthermore, the Bank was not negligent in verifying the checks as Issue: Whether or not Far East Bank is liable to reimburse
they verified the drawers signatures against their specimen Samsung for cashing out the forged check, which was drawn from
signatures and in doubt, referred to more experienced verifier for the account of Samsung
further verification
Held: Far East Bank is liable for reimbursement. Sec. 23 of the
On the contrary, it was Ilusorio who was found to be negligent. He Negotiable Instrument Law states that a forged signature makes the
accorded his secretary with an unusual degree of trust and instrument wholly inoperative. If payment is made the drawee
unrestricted access to his finances. Furthermore, despite the fact (Far East) cannot charge it to the drawers account (Samsung). The
that the bank was regularly sending statements of account, he fact that the forgery is clever is immaterial. The forged signature
failed to check them until he found out that his secretary was using may so closely resemble the genuine as to defy detection by the
his credit cards. depositor himself. And yet, if the bank pays the check, it is paying
out with its own money and not of the depositors. This rule of
Sec. 23 of the Negotiable Instruments law provides that a forged liability can be stated briefly in these words: A bank is bound to
check is inoperative, meaning there was no right to enforce know its depositors signature. The accusation of negligence on
payment against any party. But it also provides an exception: the part of Samsung was not clearly proven. Absence of proof to
unless the party against whom it is sought enforce such right is the contrary, the presumption is that the ordinary course of
precluded from setting up the forgery or want of authority. This business was followed.
case falls under the exception since Ilusorio is precluded from
setting up forgery due to his own negligence considering that he
allowed his secretary access to his credit cards, checkbook, and
allowed his secretary to verify his statements of account.

14. SAMSUNG CONSTRUCTION CO PHILS v FEBTC and

CA

Facts: Samsung Construction held an account with Far East Bank.

One day a check worth 900,000, payable to cash, was presented by